The major banks {Bank of America, JP Morgan Chase, etc) that issue credit to people like you and I, are reporting numbers that will help us understand what people are doing (or not doing) with their debt lately. A good number of the banks reported that chargeoffs are on the rise again. Charge0ffs measure the number of accounts that no longer have the ability to pay off the debt that they've spent. This can happen for a number of reasons and be a sudden occurrence but usually charge0ffs are the end result of the cardholder being delinquent and not paying minimum amounts off for their credit balances. For example, I may chargeoff because I declared bankruptcy, made some type of settlement agreement with the bank, or after a long period of time (7mos) the bank determines that I will not be paying my debt off. So the fact that there are more of these situations occurring is not not a good thing. In general, the banks chargeoff levels mirror the rate of unemployment which is understandable. The one thing this trend tells me is that it appears to be more likely that once a cardholder starts to become delinquent they usually stay that way until the bank writes them off (after 7mos) and determines that they won't get their money back.
If people aren't making good on their existing debts then that means their available credit is shrinking and I go back to my example that indicates the consumer will be pulling back or not making new purchases because they don't have any more room on their cards. This means that most purchases need to come from cash and that is hard to come buy nowadays. Does this signal another leg down for the economy...its hard not to think that we've come too far too fast.
Now before you go and think that I have nothing positive to say, there was some good news. Most of the banks reported that the number of people going delinquent is declining slightly. So its seems like the key will be for the banks to do everything in their power to keep people making those minimum payments.
See the attached link for a view of the "Lifecycle of a Deliquent Card Account" (provided by creditcards.com):
http://www.creditcards.com/credit-card-news/life-cycle-delinquent-debt-1265.php
And the reaction of one credit card issuer is to charge very high interest rates, see the what a 79% interest rate looks like here:
http://www.creditcards.com/credit-card-news/first-premier-79-rate-fees-credit-card-1265.php
Thursday, December 17, 2009
My Take On Things
My goal today for posting is similar to Nike’s slogan of “Just Do It”. I am just going to write and pretty much relay what’s on my mind. As you can tell from the gap in my postings, this has been a busy last few months. I have been impacted by many of the things that all Americans are facing with the downturn in the economy. Job loss has hit close to home and impacted my family members, I am working more hours and seem to be stressed out more, and time seems to keep ticking in the back of my head like one of those old grandfather clocks. Literally (because I reside in the Midwest) and figuratively, its grey outside and it appears that a year ago I was looking into the abyss of what I truly believe is the closest thing that we will experience in our lifetimes to an economic depression. And my goal is not to be depressing, but to keep it real. So I am going to flashback and flashforward in this posting on where I believe our economy WAS and where I truly believe things stand TODAY as it relates to my life. This hopefully will hit home to you and help you understand how all of the things that we hear, read, and see…such as the big Wall Street bonuses, TARP, cash for clunkers and the homebuyer’s tax credit are ALL RELATED but from a regular guy’s perspective like mine (and yours).
Where the Economy Was ~
Depending on how far we go back (let’s say 2.5 years ago), there was jubilation amongst everyone. I seemed to be eating out everyday, throwing bring your own booze ‘BYOB’ events at different restaurants and traveling to either Vegas or South Beach at least twice a year. And I never thought to ask why but before it used to be a small trip between me and my friends that managed their finances well (fiscally conservative) and then it blossomed to the guys that didn’t always manage their finances but who could now make the trip. And I never thought much about the phenomenon but our trip of almost 10 people for a sun filled trip to Miami could have been an indicator of things to come. Where did everyone get the money (steady jobs, bonuses, easy credit) to be able to go all of a sudden…especially when a round of Patron in S. Beach cost each person over 80 bucks??? I didn’t think about that at the time but the other event I did find strange was home buying activities in Chicago. I recall a few years back that everyone was asking me when I was going to buy. So I stuck my toe in the water and found out that buying a home in Chicago was easily going to cost me almost 3x as much as it did in Indiana. And on my average joe salary the numbers didn’t match up??? So what did I do…I BLOGGED about this phenomenon over and over and some people got it, while many others didn’t (see http://urbanomics.blogspot.com/2006/02/huff-puff-blow-houses-down.html . My only mistake with housing was assuming that most of the inventory was being bought by speculative investors with deep pockets, but read on because the investors were average people like you and I caught up in the frenzy…of flipping houses and retiring early. But what I didn’t see was the tsunami effect that was to come of too much easy debt to buy houses and obtain loans, credit cards, etc. I didn’t watch TV outside of sports and the occasional Law and Order episode. If I would have clicked a little bit further I would have known that there were new shows cropping about how to “FLIP That House”, “Buying Tons of Property with Lines of Credit”, and I appreciate Suze Orman’s segment of “Can I Afford It”. I wasn’t in tune to the fact that the nation was building a culture of people that were just buying things with no regards as to whether they could afford it. My rule of thumb is if you have to call into a show to ask whether you can afford something then you probably should not be buying it! And to be fair these tv shows should show both sides by doing a “Where are They Know” segment: helping us understand how long those flippers had to hold that property before they ran out of money or were foreclosed on and their dreams where swept away. That would have been Real TV and not just the happy story of flip every home and make a minimum of $35-50K of each flip in no time.
I don’t know what kicked things off but the house of cards crumbled. Was it finally that the market ran out of easy buyers and found the one’s like me that asked “How Can I Afford This” or “Why Are You Giving Me So Much Debt”? There must have been a peak when the banks realized that the uninformed buyers were running out OR that we had stretched them too thin. Who could keep up with inflated mortgages, debt to furnish this gigantic house, and debt to finance their new life of upgrades (i.e., cars, clothes, dinners, vacations). I am guessing the first realization came as banks began HALTING credit lines à No more borrowing against your home (Home Equity Lines of Credit) and no more extensions for your credit card which has reached it limits. So guess what this halting of initial credit does, it crimps our lifestyles and people stop making extravagant purchases. My first clue was the Recreational Vehicle (RV) market and their predictions of a slowdown. Think this is the ultimate purchase for people with excess money a lavish vehicle to travel around in and still feel at home. Then most people stopped spending on themselves and stopped buying clothing, jewelry, cars, and holiday trips to warm places. This pullback caused all these industries – Retail, RV, auto, transportation to start to cut jobs to match the lack of demand. And hell breaks loose when anyone (but especially overextended people) starts to loose a job. Why, because there is a mountain above your head of things to pay. Let’s start naming them: mortgage/rent, car bills, utilities, credit card, school loans, insurance, and medical bills. And when jobs are cut across entire social classes you begin to realize that even rich people have huge mortgages, autos, boats, vacation properties to keep up with.
For me and my family, the downturn in the economy hit hard and hit fast. It rattled our conservative little family because our family’s employment history represents the entire workforce via construction, legal, business, technology, healthcare, and education. And the first shoe to drop was the construction section and we had a member of our family unemployed. I began writing even further that this wasn’t your normal recession and not to drink the Kool-Aid from all the people on Wall Street like Larry Kudlow who told you to keep waiting for the goldilocks rally that never came as the Dow Jones Industrials dropped from 10K to below 7K. This recession was hitting college educated people in growth fields like construction. And I didn’t believe the hype when they were telling you that this is where capitalism kicks in and the great trickle down effect of rich people spending money would bring us back see http://urbanomics.blogspot.com/2008/03/hey-i-cant-swimand-neither-can-wall.html . This time I wrote it seems different, because this was not like other bubbles and it wasn’t just people on the lower end of the social spectrum being hit with job losses or their dollar not stretching as far. But what they didn’t realize what that the folks of every class where being impacted because everyone was trying to keep up with the next level up.
If you recall, I wrote about conservation and a prudent evaluation of your entire financial landscape. Reassess everything and get rid of excess debt (see http://urbanomics.blogspot.com/2008/07/mystery-market.html & http://urbanomics.blogspot.com/2008/05/hot-topics-oil-housing-economy.html ). For me, I had caught the bug slightly and often bought stocks on margin…what a mistake that was. When you use someone else’s money and the value of your investment goes down, not only do you have to pay them back in full but with interest. So in some ways I felt want the homeowner or credit card borrower was going through. I don’t want to sell while the value was dropping and ohhh great…money has to come out of my bank account to get rid of this extra debt. This prompted me to start taking my lunch to work, and going out less, and shopping less…and buying groceries. There were no vacations this year except for weddings and family get togethers. And that’s when I thought about what would turn this economy around…I didn’t know then but I summed up my hunch saying that it would take a mix of things to stimulate people from “pulling back” (see http://urbanomics.blogspot.com/2008/10/bailout-what-this-means-to-you-plus.html) And I remember saying let’s help the people that have pulled back on spending and can pull no further and need help with daily responsibilities. And while I was right then, I missed the fact that all the temporary band-aids (tax cuts, clunker) only work for so long… and the ultimate area of assistance has always been with JOBS. If there are no jobs, this pull back continues…because while again others may use the phrase “90% of Americans are still working and therefore consuming” they may be a little bit out of touch with the real world. The real world knows that its more that 10% unemployment and it also knows that many of the “90%” are like me and don’t and won’t consume much until things start looking better for the people around us.
And for my flashforward ~ To be continued
Where the Economy Was ~
Depending on how far we go back (let’s say 2.5 years ago), there was jubilation amongst everyone. I seemed to be eating out everyday, throwing bring your own booze ‘BYOB’ events at different restaurants and traveling to either Vegas or South Beach at least twice a year. And I never thought to ask why but before it used to be a small trip between me and my friends that managed their finances well (fiscally conservative) and then it blossomed to the guys that didn’t always manage their finances but who could now make the trip. And I never thought much about the phenomenon but our trip of almost 10 people for a sun filled trip to Miami could have been an indicator of things to come. Where did everyone get the money (steady jobs, bonuses, easy credit) to be able to go all of a sudden…especially when a round of Patron in S. Beach cost each person over 80 bucks??? I didn’t think about that at the time but the other event I did find strange was home buying activities in Chicago. I recall a few years back that everyone was asking me when I was going to buy. So I stuck my toe in the water and found out that buying a home in Chicago was easily going to cost me almost 3x as much as it did in Indiana. And on my average joe salary the numbers didn’t match up??? So what did I do…I BLOGGED about this phenomenon over and over and some people got it, while many others didn’t (see http://urbanomics.blogspot.com/2006/02/huff-puff-blow-houses-down.html . My only mistake with housing was assuming that most of the inventory was being bought by speculative investors with deep pockets, but read on because the investors were average people like you and I caught up in the frenzy…of flipping houses and retiring early. But what I didn’t see was the tsunami effect that was to come of too much easy debt to buy houses and obtain loans, credit cards, etc. I didn’t watch TV outside of sports and the occasional Law and Order episode. If I would have clicked a little bit further I would have known that there were new shows cropping about how to “FLIP That House”, “Buying Tons of Property with Lines of Credit”, and I appreciate Suze Orman’s segment of “Can I Afford It”. I wasn’t in tune to the fact that the nation was building a culture of people that were just buying things with no regards as to whether they could afford it. My rule of thumb is if you have to call into a show to ask whether you can afford something then you probably should not be buying it! And to be fair these tv shows should show both sides by doing a “Where are They Know” segment: helping us understand how long those flippers had to hold that property before they ran out of money or were foreclosed on and their dreams where swept away. That would have been Real TV and not just the happy story of flip every home and make a minimum of $35-50K of each flip in no time.
I don’t know what kicked things off but the house of cards crumbled. Was it finally that the market ran out of easy buyers and found the one’s like me that asked “How Can I Afford This” or “Why Are You Giving Me So Much Debt”? There must have been a peak when the banks realized that the uninformed buyers were running out OR that we had stretched them too thin. Who could keep up with inflated mortgages, debt to furnish this gigantic house, and debt to finance their new life of upgrades (i.e., cars, clothes, dinners, vacations). I am guessing the first realization came as banks began HALTING credit lines à No more borrowing against your home (Home Equity Lines of Credit) and no more extensions for your credit card which has reached it limits. So guess what this halting of initial credit does, it crimps our lifestyles and people stop making extravagant purchases. My first clue was the Recreational Vehicle (RV) market and their predictions of a slowdown. Think this is the ultimate purchase for people with excess money a lavish vehicle to travel around in and still feel at home. Then most people stopped spending on themselves and stopped buying clothing, jewelry, cars, and holiday trips to warm places. This pullback caused all these industries – Retail, RV, auto, transportation to start to cut jobs to match the lack of demand. And hell breaks loose when anyone (but especially overextended people) starts to loose a job. Why, because there is a mountain above your head of things to pay. Let’s start naming them: mortgage/rent, car bills, utilities, credit card, school loans, insurance, and medical bills. And when jobs are cut across entire social classes you begin to realize that even rich people have huge mortgages, autos, boats, vacation properties to keep up with.
For me and my family, the downturn in the economy hit hard and hit fast. It rattled our conservative little family because our family’s employment history represents the entire workforce via construction, legal, business, technology, healthcare, and education. And the first shoe to drop was the construction section and we had a member of our family unemployed. I began writing even further that this wasn’t your normal recession and not to drink the Kool-Aid from all the people on Wall Street like Larry Kudlow who told you to keep waiting for the goldilocks rally that never came as the Dow Jones Industrials dropped from 10K to below 7K. This recession was hitting college educated people in growth fields like construction. And I didn’t believe the hype when they were telling you that this is where capitalism kicks in and the great trickle down effect of rich people spending money would bring us back see http://urbanomics.blogspot.com/2008/03/hey-i-cant-swimand-neither-can-wall.html . This time I wrote it seems different, because this was not like other bubbles and it wasn’t just people on the lower end of the social spectrum being hit with job losses or their dollar not stretching as far. But what they didn’t realize what that the folks of every class where being impacted because everyone was trying to keep up with the next level up.
If you recall, I wrote about conservation and a prudent evaluation of your entire financial landscape. Reassess everything and get rid of excess debt (see http://urbanomics.blogspot.com/2008/07/mystery-market.html & http://urbanomics.blogspot.com/2008/05/hot-topics-oil-housing-economy.html ). For me, I had caught the bug slightly and often bought stocks on margin…what a mistake that was. When you use someone else’s money and the value of your investment goes down, not only do you have to pay them back in full but with interest. So in some ways I felt want the homeowner or credit card borrower was going through. I don’t want to sell while the value was dropping and ohhh great…money has to come out of my bank account to get rid of this extra debt. This prompted me to start taking my lunch to work, and going out less, and shopping less…and buying groceries. There were no vacations this year except for weddings and family get togethers. And that’s when I thought about what would turn this economy around…I didn’t know then but I summed up my hunch saying that it would take a mix of things to stimulate people from “pulling back” (see http://urbanomics.blogspot.com/2008/10/bailout-what-this-means-to-you-plus.html) And I remember saying let’s help the people that have pulled back on spending and can pull no further and need help with daily responsibilities. And while I was right then, I missed the fact that all the temporary band-aids (tax cuts, clunker) only work for so long… and the ultimate area of assistance has always been with JOBS. If there are no jobs, this pull back continues…because while again others may use the phrase “90% of Americans are still working and therefore consuming” they may be a little bit out of touch with the real world. The real world knows that its more that 10% unemployment and it also knows that many of the “90%” are like me and don’t and won’t consume much until things start looking better for the people around us.
And for my flashforward ~ To be continued
Subscribe to:
Posts (Atom)